For those who’ve been keeping up with the current rise in interest rates and shopping around to take advantage of the best CD (Certificate of Deposit) rates, you may have noticed some of the highest rates – 5.50% APY and above – are often from credit unions.

Why do credit unions pay higher CD rates? They say one reason is that they operate not-for-profit. Credit unions are owned and controlled by the people or members who use their services. Because they are not shareholder-owned, profits made by credit unions are generally redistributed to the members in the form of reduced fees, lower loan rates, and higher earnings on deposit accounts, like CDs.

“Credit unions pay higher yields as a benefit to our members and at the same time to make sure we have enough funds to provide loans to the community,” said Credit Union National Association Senior Economist Ligia Vado.

However, despite having some of the best CD rates, credit unions are not necessarily available or easily accessible to just anyone and everyone, and they may not offer all the banking services that you may need. Before you set your sights on opening a CD at a credit union, here’s what you should consider:

But Why Can’t Everyone Get Those Good Rates?

Unlike banks, credit union membership can be selective. “Field of Membership” limitations may include membership through an employer; if you live, work, attend school, or worship in a specific geographic location, or if you’re a member of an organization such as a labor union.

However, a set of membership requirements isn’t implemented across the board for all credit unions. Vado explained, “A lot of credit unions are community-chartered meaning that anybody living within 10 miles of a credit union can bank with them without being part of a field of membership.”

She advises consumers if they have a credit union within their neighborhood or area that offers the financial services they need.

CD Offers Are Promotional in Nature

Secondly, Vado described that as interest rates continue to climb, a lot of financial institutions are paying higher yields for CDs to attract money that will fund loans. Credit unions are following suit now that funding is getting competitive across the industry.

To help attract eligible members in this competitive landscape, credit unions are promoting the benefits a membership offers, such as lower interest rates on loans, financial counseling, and most importantly higher CD rates.

“When you are a member of a credit union, there is opportunity for education and financial literacy,” Vado included. “We make it a point to invite members to be part of events to learn how to manage their money and how to improve their financial being.” Banks also offer these services to consumers.

Final Takeaway

It’s important to remember that CD rates vary across all financial institutions. Just because it’s a credit union doesn’t mean its rate will be the highest. Shop around and do your research to check membership eligibility for rates at credit unions and compare rates with several financial institutions to make sure you qualify or are getting the best rate that will help you achieve your savings goals.

FAQs

Why do credit unions offer higher CD rates?

Credit unions operate not-for-profit, redistributing profits to members through reduced fees, lower loan rates, and higher CD earnings.

Are credit unions accessible to everyone?

No, credit unions have membership limitations. It’s crucial to check if a credit union in your area offers the services you need.

What makes credit unions different from banks in terms of rates?

Credit unions’ not-for-profit model allows them to offer higher rates by redistributing profits to members, creating a different dynamic compared to shareholder-owned banks.

How should I choose between a credit union and a bank for CDs?

Use our CD compare tool to compare rates and services offered by both credit unions and banks to ensure you’re getting the best CD rate that aligns with your savings goals.